2014 will be a big year for the self-invested pension industry; the Financial Conduct Authority (FCA) is due to release its final proposals for capital adequacy requirements for SIPP (Self-Invested Personal Pension) providers, further consolidation is expected, whilst the spectre of poorly performing unregulated investments continues to cast a cloud over certain providers.
We’ve asked leading figures for their hopes and fears for 2014. What are the key issues? What changes do they expect in 2014? Most importantly, how will they affect your SIPP?
John Fox, Liberty SIPP
There’s no doubt about the elephant in the room for the SIPP industry this year: it’s the FCA’s proposed capital adequacy requirements. Both the timing and severity of the requirements are still unclear, despite having been delayed a number of times.
If there’s one thing clients don’t like, it’s a lack of clarity. If the current nervousness turns into panic, the SIPPs industry will suffer — and this is probably my major fear. 2013 was marred by pension liberation scams and a number of dodgy investment scandals – so the last thing we need now is more uncertainty.
What’s not in doubt is that the industry needs more fee transparency — and this is my major hope for 2014. SIPPs are meant to be simple, flexible and transparent but this is still, too often, not the case — especially when it comes to the commissions many SIPP providers take from their mandated current accounts.
I truly hope the SIPP providers that retain the interest paid on the bank accounts they set up on clients’ behalf will end this underhand practice. There can be no justification for pension providers to help themselves to cash they have neither earned nor deserve.
Claire Trott, Head of Technical Support, Talbot & Muir
In 2014, I hope for some calm in the SIPP industry, there have been many issues in the last year, capital adequacy being postponed and pensions liberation to name just two.
The knock on effect of some of these disruptive issues is the closure and sale of SIPP books and firms, which can cause additional problems for advisers who are already dealing with many other issues. Advisers will have done their research and given a recommendation to their clients that they may now be forced to review. Their clients could end up with a provider that they are not comfortable working with or that doesn’t offer the services they require. Advisers need to be able to be confident that the providers they are choosing are committed to the market when they make a recommendation. They will need to look closer at the provider’s longevity in addition to all the other research they have to do to make a recommendation.
Gareth Fatchett, Regulatory Legal and Harlequin Investor Group
The key issues this year will spin out of the Final Guidance issued by the FCA in October 2013. The guidance reaches back to 2007/8 period and therefore covers all the high profile contentious schemes which have been placed within SIPPs.
The extent that SIPP trustees need to undertake due diligence is going to be clarified this year. If investors show that due diligence failed we expect some fairly high profile collapses of SIPPs. If not, then we will know exactly where the due diligence line stops and starts.
John Moret, More to SIPPs
My hope is that 25 years after Nigel Lawson conceived SIPPs we can return to a situation where providers can actually make it easier for individuals to control their own pension fund –as Lord Lawson envisaged. That doesn’t mean to the exclusion of advice – it’s about investment freedom. That also doesn’t mean that any investment should be allowed – but that the regulatory framework is adapted so that it recognises different client risk scenarios rather than constraining investment flexibility indiscriminately through broad brush measures such as increased capital requirements. Investments such as gold bullion, property or private company shares have a place in some SIPP portfolios albeit only in a minority of cases.
My fear is that the regulatory overhead will continue to grow – partly through the lack of a single regulator – which in turn will lead to reduced competition, less investment choice and an increase in prices – none of which will be of benefit to individual SIPP investors. The regulators should remember that a well-run and properly invested SIPP really is for life – and that constant regulatory interference will further undermine consumer confidence and endanger outcomes. Quite rightly the regulatory focus should be on continuing to raise standards amongst providers, investment managers and advisers but not through blind application of inappropriate rules or through unnecessary duplication. At the moment the fear of regulatory sanctions is dominating many SIPP businesses – rather than focussing on customer needs. That mustn’t be allowed to continue.
My hope for the coming year is that as Auto Enrolment continues there will be a growing acceptance by UK workers in general of the need to save more for retirement and an increasingly positive attitude towards pensions and retirement as people see their pot begin to grow and sense there is something to look forward to. I am convinced it is reasonable for the typical worker to save significantly more than the current approximate £30,000 average over an entire working lifetime. Combined with a reversal of the ballooning length of retirement, this will see greater affluence and positivity in later life.
My fear is that there will be further SIPP operator failures in 2014 resulting in reputational damage for SIPPs that is unrepresentative of the industry as a whole. The FCA has made its concerns clear about operators that have concentrations of UCIS and close substitutes on their books; it has also raised its concerns about conflicts of interest. In 2013 such concerns became reality. Worse, I believe the full extent of the problems has not yet been revealed. However, the vividness and seriousness of such cases too easily means people lose sight of the fact that this is not the experience of well over 99% of SIPP members.
Ray Chinn, LV= Head of Pensions and Investments
We expect to see growing momentum around consolidation in the SIPP market this year with smaller providers continuing to struggle under the weight of the regulatory pressure. No doubt many advisers with clients with SIPPs with providers who look like they may struggle to meet capital adequacy requirements are already looking to move these clients elsewhere.
Of greater impact to the wider market which includes clients and advisers is the inexorable march towards greater transparency. Indeed many providers have already moved, or are moving to a more transparent model. However some SIPP providers are being slow to disclose the fees they charge and it would be nice to see the FCA flex its muscles in this area.
Billy Mackay, Marketing Director, AJ Bell
Typically most of us start the new year focussed on hopes rather than fears so I’ll begin there. In doing so we must start with an appreciation of where we are. FCA thematic work and consultation on SIPP operator capital adequacy has been to the fore.
SIPP users may justifiably have been confused by the range of potentially contradictory provider comments shared in the press on these, particularly capital adequacy.
We all want a competitive and vibrant SIPP market but there must be an appreciation that advisers and clients want an operator that has a long term future and commitment to the market. It is therefore in all parties’ interests to have a sensibly regulated and adequately capitalised SIPP industry.
The FCA’s consultations indicate that it is looking for a substantial increase in the capital held. When we’re eventually provided with the rules, I hope we do not see long term players forced out of the market by overly aggressive measures or insufficient time for operators to make their financial structure fit for purpose.
Balancing sensible regulation and adequate capitalisation is the key point. A wide range of different SIPP propositions and fee structures will benefit all. But advisers and their clients need confidence in the long term future of their chosen SIPP operator.
Turning to fears I would have to say that I am not typically the type of individual that is driven by fear. If forced to comment, we must be mindful that the SIPP market has been facing its third FCA thematic review in as many years. The outcome of this will be more change. The industry is not afraid of change in fact there are areas where calls for change have fallen on deaf ears. Our own lobbying activity involves a call for change in seven areas. One that involves SIPPs is something we have been pushing for some time, the re-introduction of a permitted investment list.
The harsh reality is that before A-Day, when there was a SIPP permitted investment list; it was rare to hear about SIPP investments failing. Since A-Day, we have seen a steady stream of failed investments that were purchased via SIPPs, a number of which would not have been permitted under the previous rules. Any change that helps address the number of failing SIPP investments and provides investors with greater protection must be good but I fear this will remain a hope.
I was watching a film with my son last week when I heard the quote “Hope. It is the only thing stronger than fear.” Let’s hope so.
Iain Herbertson, Enhance Support Solutions
My hopes are for ‘stability’ and ‘clarity’. Important is clarity of the capital adequacy regime inclusive of the impacts of the underlying scheme assets held by operators. This will enable providers to finally decide if they wish to continue as a provider or to exit the market.
Clarity is required regarding the distribution of unregulated investments and that PS13/3 fulfils the role of ensuring these investments are distributed to the right people, given this is core to many of the problems faced by the sector and is of concern to the regulator. This will hopefully facilitate stability after the regulator’s third thematic review is concluded. Currently SIPP operators are facing potential liability linked to the distribution/failure of non-standard assets and this will be a challenge through 2014.
Once stability and clarity prevails it will enable operators to commit to the market and develop products for appropriate target markets, building profitable long-term businesses with strong system and controls. Healthy competition for business within a market environment free from scaremongering and hearsay is a hope. To help this, clarity from the regulator is required in regards to the retention of banking interest and the way SIPPs are paid for, in particular taking account of the platform policy statement (PS13/1).
Central to the FCA’s objectives is avoiding consumer detriment. Consequently we may see the FCA take an interest in non-advised/execution cases linked to SIPP and pension transfer transactions. Hopefully this will prevent this process being potentially exploited to facilitate non-advised investment into non-standard investments.
My biggest fear is that new capital regime is implemented incorrectly and does more harm than good, potentially making certain elements of providers’ books undesirable for purchase, resulting in orphan portfolios where providers are forced to close potentially causing significant consumer detriment and further damaging the industry’s reputation.
To end with hope which is to move on from this state of limbo and be left with an industry that still provides freedom of choice, flexibility and remains a valuable retirement tool for appropriate clients.
James Randall, Sales Executive, I.P.M. SIPP
It seams like a long time ago now, but April 2006 was the introduction of “Pensions Simplification”. The time when legislation was passed giving a clear and easy to understand framework for pension schemes to operate within. Since that date the position has got steadily more complicated and this looks likely to continue. Not only is legislation issued by HMRC, but since the advent of regulation for Personal Pension Scheme Operators (in April 2007) the SIPP market has been bombarded with additional requirements, intended to help protect the scheme member. Unfortunately, we do not see all of the changes as positive.
Our hope would be that this trend to overcomplicate is reversed.
If asked to choose one area of simplification specifically, it would be the reintroduction of the Permitted Investments list. Surely this would satisfy the FCA and HMRC. The FCA would be comfortable that individuals were being offered “suitable” investment products/types for their pension schemes and could eliminate those esoteric investments to which they are averse. We suspect that it would also be welcomed by most SIPP Operators, putting them in a position to be able to give a clear decisive answer to investment proposals presented to them. This would also be palatable for HMRC who established the list in the first instance.
The fear is that the list will not be introduced and the FCA, in an attempt to protect individuals, will add confusion to the market place as SIPP Operators take a different stance on the variety of investment types currently presented to them.